ADM Mulls Other Deals, Share Buybacks After GrainCorp Bid

Archer-Daniels-Midland Co. has repurchased about 2.8 million shares worth an estimated $100 million this year, Chief Financial Officer Ray Young said on an Oct. 29 earnings call. Photographer: Daniel Acker/Bloomberg

Nov. 30 (Bloomberg) -- Archer-Daniels-Midland Co.’s failure
to win Australian approval to buy GrainCorp Ltd. opens the door
for share buybacks, bigger dividends or other acquisitions as
the company reviews how to use about $3.5 billion in cash.

The world’s largest corn processor will consider ways to
boost shareholder returns as well as investing in organic growth
or takeovers, Victoria Podesta, a spokeswoman for the Decatur,
Illinois-based company, said in a phone interview yesterday. ADM
held $3.5 billion in cash and short-term assets as of Sept. 30,
according to data compiled by Bloomberg.

Australia’s rejection of ADM’s A$2.2 billion ($2 billion)
takeover of Sydney-based GrainCorp yesterday was the first time
a U.S. company has been blocked from buying assets in that
country. Treasurer Joe Hockey said now was not the right time
for a foreign company to take full ownership of “this key
Australian business.” GrainCorp is the biggest crop handler on
Australia’s eastern coast.

The GrainCorp acquisition “was good to have but not
critical to our future,” Podesta said. “Where we see good
opportunities that fit our strategy and our expectations for
value creation for shareholders, we would act on those
opportunities.”

ADM, which holds a 19.85 percent stake in GrainCorp, in
April agreed to buy the remaining stock for A$12.20 a share.
Sales at GrainCorp, which has benefited from increasing Asian
demand, have jumped since Australia’s 2006 decision to strip AWB
Ltd. of its wheat export monopoly. Hockey left open the option
for ADM to increase its stake to 24.9 percent.

‘Surprising Decision’

It was a “surprising decision,” Ken Zaslow, a New York-based analyst for BMO Capital Markets, said of the Australian
ruling in a report yesterday. ADM may maintain its position in
GrainCorp, increase its stake for a potential future takeover
bid or forge a partnership and sell its interest, he wrote.

The company doesn’t plan to appeal the decision and is
considering whether to increase its stake in GrainCorp, Podesta
said. She declined to comment on whether ADM would consider
another bid to acquire the Australian company.

ADM has repurchased about 2.8 million shares worth an
estimated $100 million this year, Chief Financial Officer Ray
Young said on an Oct. 29 earnings call. It needs to buy back 11
million more shares to offset the impact of an equity unit
conversion in 2011, he said.

Buying Global

The company has raised its dividend for the past 12 years
and historically had a dividend payout ratio of as much as 25
percent of earnings, Young said during a Nov. 13 presentation.
The company is expected to boost the quarterly dividend to 20
cents next year from 19 cents, according to Bloomberg dividend
projections.

A strategic acquisition with a high return on invested
capital should rank above dividends and share repurchases, said
Marian L. Kessler, a Portland, Oregon-based portfolio manager
for Becker Capital Management Inc., which holds 989,516 ADM
shares.

“That’s how you grow your business,” Kessler said in a
phone interview yesterday. “They have been buying global assets
and will continue that model.”

The company had pursued GrainCorp to increase its sources
of crops and to meet growing Asian demand. GrainCorp, the only
major publicly traded grain merchant left in Australia after the
country deregulated its wheat-export system, would have given
ADM control of 280 storage sites and seven ports that ship grain
in bulk from the nation’s east coast.

Opportunity ‘Pipeline’

GrainCorp declined 22 percent to A$8.72 in Sydney
yesterday. ADM fell 3 percent to $40.25 at the close in New
York. The company may provide more details on its future plans
when it releases fourth-quarter earnings, Podesta said. “We
have a pipeline of good opportunities.”

Earnings for ADM are expected to rise to $3.23 a share next
year, excluding one-time items, according to the average of 13
analysts’ estimates compiled by Bloomberg.

“The ample grain harvest and strong ethanol margins, along
with share repurchases will likely allow ADM to meet and
possibly exceed our $3.55 earnings-per-share estimate in 2014
without GrainCorp,” Farha Aslam, a New York-based analyst for
Stephens Inc. who recommends buying ADM shares, said in a
report.